Market snapshot: focus on US earnings season

Returning from a national holiday, attention on Wall Street shifts straight back to quarterly results, while over here it's all eyes on the latest jobs report.

Investors remain in reflective mood as the economic effects of Omicron remain unclear and as the corporate earnings season kicks into gear.

In terms of earnings expectations, it is hoped that the somewhat lacklustre opening from some of the US banks at the end of last week is not the thin end of the wedge. Hopes are particularly high for the fourth quarter to round off a strong year of recovery, with corporates displaying improved revenues, margins and profits.

Higher raw material prices and shortages in both the supply chain and the labour market are likely to get extended airtime, with a question mark overhanging how much of the inflated costs were passed on to the consumer. As a vital cog in the US economic wheel, the strength of the consumer both in terms of sentiment and spending will play a significant part in determining corporate performance.

As the trading week begins in the US after the Martin Luther King holiday on Monday, investors will hone in on the next clutch of companies to report, including the likes of Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and Netflix (NASDAQ:NFLX) for more clues on the state of corporate health.

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In the absence of a lead from Wall Street, Asian markets were mixed following some conflicting regional signs. In China, retail sales were weaker than expected, but industrial output grew and, for the year as a whole, the export market was strong. Even so, Omicron related pressures, most notably local lockdowns, continue to weigh on sentiment, if not actual economic growth.

The oil price also continued its march higher for the year and is now up by almost 13% in 2022, as investors see limited impact on demand from the variant, with tight supply also remaining in force.

In the UK, the jobless numbers implied a market in generally good health. The impact of the removal of the furlough scheme and the Omicron variant seems to have been initially limited, with a drop in unemployment numbers and another increase in job vacancies suggesting that the widespread staff shortages reported at the end of last year could be a short-lived effect.

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More broadly, investors took a moment to pause for reflection in early exchanges as the FTSE100 dipped on the open. Nonetheless – and unusually – the index remains in positive territory for the year as compared to its major US counterparts, which have faltered.

Still ahead by 2.7% in 2022, the FTSE100 is enjoying the benefit of the current focus on cyclical and value plays, underpinned by its large exposure to resource and banking stocks. Some M&A froth in the pharmaceutical sector, another large constituent of the index, has also boosted general performance.

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